The bid had represented a 62 percent premium over Yahoo's trading price at the time of the Jan. 31 offer, but Yahoo's board of directors rejected the offer, noting as well the likelihood of a difficult and lengthy regulatory review.

In a statement, the company explained was not in its stockholders' best interests because it undervalues items such as Yahoo's "global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments."

The news is just the latest in the unfolding hostile bid and strategic maneuvers that gambit has unleashed. For example, the portal/media company could be reviving a deal with AOL as an alternative to thwart Microsoft's intentions, according to a news report.

Citing a "source close to Yahoo's thinking," The London Times reported that Yahoo was exploring an AOL tie-up, as well as possible alliances with Disney or Google.

In last week's earnings call, Time Warner CEO Jeffrey Bewkes said that he would split AOL, creating a streamlined advertising and free-content business that would operate separately from its dwindling dial-up business. Bewkes' call to streamline AOL's "audience" business as an independent unit rekindled speculation that the venerable Internet brand could play a role in any industry realignment triggered by the Microsoft bid.

Google, which owns a 5 percent share of AOL, has reached out to Yahoo to discuss alternatives to being swallowed by Microsoft. The likely scenarios have Yahoo outsourcing its search or ad-placement businesses -- or both -- to Google. An outright merger would have a very difficult time winning regulatory approval; and even an outsourcing agreement would come under close scrutiny.

A combination of AOL and Yahoo would bring together two of the Internet's largest portals. According to online metrics firm comScore, Yahoo sites drew in nearly 137 million visitors in December. Visitors to the Time Warner Network that month numbered 119.5 million, comprised mainly of traffic through the AOL portal.

AOL did not respond to a request for comment by press time. Yahoo has said that it is exploring "all of the company's strategic alternatives" in light of Microsoft's bid.